Iraq and the Oil Markets

MARCH 19 -- The most frequently asked question we hear is "What will oil service stocks do following a war with Iraq?" We continue to maintain our view that oil service stocks will outperform the S&P 500 as they have in six of the past eight years.

Near-term large oil shipments from Saudi Arabia and others will likely do little to boost US crude inventories, which are sitting near 28-year lows.

We believe any potential event driven sell-off should be of short duration since the OSX has not participated in the commodity price run.

Post Iraq, conventional wisdom suggests money will exit the energy group and move into underperforming economically sensitive industry sectors. However, such a move would be trading oriented and relatively short-lived, in our opinion.

We believe oil service stocks should regain momentum as investors realize an oil price induced economic rally should be positive for energy fundamentals.

-- Kurt Hallead

-- Samir G. Chauhan

-- Victor Marchon

-- Kevin G. Pollard, CFA

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